March 11, 2008 / 2:47 AM / 11 years ago

GLOBAL MARKETS-Asian stocks lower; inflation concerns sour mood

(Repeats unchanged to wider audience) (Adds China CPI, updates prices)

By Rafael Nam

HONG KONG, March 11 (Reuters) - Asian stocks headed for a third session of losses on Tuesday, hovering around seven-week lows, as a looming U.S. recession is expected to slow economies worldwide and deepen credit-related problems in the financial sector.

Concerns that inflation was getting out of control also nagged across Asia. China, a top export destination for much of the region, said its consumer inflation jumped to an 11-year high last month, hitting shares in Shanghai .SSEC and Hong Kong .HSI.

Oil, seen as a safe haven against inflation and a weak dollar, held steady after hitting a record above $108 a barrel on Monday, while gold was range-bound, though below $975 an ounce.

The dollar traded near an eight-year low against the yen on expectations for aggressive cuts in U.S. interest rates, but some Asian currencies such as the South Korean won KRW= weakened against the dollar as investors shun riskier assets.

“Concerns about inflation are very strong. Hedge funds are selling stocks and buying commodities, especially in oil and gold, because the U.S. dollar is weakening,” said Takeda Makoto, an analyst at Bansei Securities in Japan.

The MSCI measure of Asian stocks outside Japan .MIAPJ0000PUS was down more than 1 percent at 0410 GMT, after falling more than 2 percent in each of the previous two sessions.

Japan's Nikkei 225 index .N225 was down 0.3 percent, after earlier dropping as much as 1.4 percent, shares in Australia fell 1.4 percent, and Hong Kong .HSI lost 1.2 percent.

Shares in China were down 0.7 percent, but markets in South Korea .KS11 and Taiwan .TWII edged slightly higher.


Exporters, such as Japan’s Canon Inc (7751.T), extended their losing streak on expectations that Asia will fall under the sway of a U.S. economy that many believe is either in or near a recession.

Financial companies such as South Korea’s Kookmin Bank 060000.KS have suffered from the fall-out of subprime and credit-related writedowns worldwide.

Speculation that Bear Stearns Co BSC.N was facing a cash crunch contributed to Wall Street falls on Monday, even though the U.S. investment bank dismissed the talk as “totally ridiculous”. [ID:nN10462988]

Central bankers across Asia are bracing for a year of tough decisions as a global economic slowdown coincides with record commodity and food product prices.

China said its February consumer inflation jumped to 8.7 percent, above economists’ expectations for an 8 percent increase. [ID:nPEK256495]

“There’s growing concern that China’s inflation is getting out of control,” said Li Huiyong, an analyst at Shenyn & Wanguo Securities in Shanghai.

The nominee for governor of the Bank of Japan, Toshiro Muto, said on Tuesday the world’s second-biggest economy was at a “critical” stage, as risks to the global economy rise, while Japan also faces higher raw materials and energy costs. [ID:nT213867]

Countries across the region are already reporting slowing growth in overseas sales. Philippines said its exports rose 6.4 percent in January from a year ago, versus a 21.4 percent annual climb in December. [ID:nMNT000672]

“I think we are seeing this throughout, that U.S. recession is slowing down all the exports of Asian economies,” said Kenneth Chen, chief analyst at Informa Global Markets. “I think we are going to see this continuing for the next couple of months.”

Japanese government bond futures tested new 2-½ year highs. The June futures 2JGBM8, which took over as the lead contract in the previous session, climbed 0.03 point to 139.56.

However, the fixed income picture is worse in other parts of Asia as the prospect of higher inflation dents the appeal of holding government debt.

South Korean bonds held steady after expectations the central bank will not cut interest rates sent yields higher on Monday.


Worries about the U.S. economy are being reflected in a slumping dollar, which on Tuesday remained near an 8-year low against the yen. Traders have noted speculation the U.S. Federal Reserve could cut interest rates before a meeting next week.

The dollar steadied at 101.75 yen JPY= from late U.S. trade on Monday, still above an eight-year low of 101.40 yen struck in electronic trading on Friday.

But unlike the yen, other currencies in the region are softening as investors shun riskier assets. The won KRW= hit a two-year low of 980.5 against the dollar in early trade, while the Australian dollar AUD= fell to three-week lows.

The relentless rally in oil and metals prices paused on Tuesday, with U.S. crude futures CLc1 off 8 cents at $107.82 a barrel. On Monday, oil hit a record $108.21.

Gold XAU= was at $973.5/974.3 an ounce, slightly lower than late in New York and below last week’s record $991.90.

But spot platinum XPT= rebounded to $2,042/2,052 an ounce from 1,980/1,990 late on Monday. The metal, widely used in auto catalysts, has risen as much as 50 percent this year.

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